Low-Wage Lessons

January 31, 2012

Economist John Schmitt published a report for the Center for Economic and Policy Research on what policymakers can learn about low-wage work from the recent experiences of the United States and other rich economies in the Organization for Economic Cooperation and Development (OECD). Schmitt, co-editor of the RSF volume Low-Wage Work in the Wealthy World says the low-wage sector remains a major part of labor markets in industrialized countries:

Over the last two decades, high – and, in some countries, rising – rates of low-wage work have emerged as a major political concern. According to the OECD, in 2009, about one-fourth of U.S. workers were in low-wage jobs, defined as earning less than two-thirds of the national median hourly wage (see first figure below). About one-fifth of workers in the United Kingdom, Canada, Ireland, and Germany were receiving low wages by the same definition. In all but a handful of the rich OECD countries, more than 10 percent of the workforce was in a low-wage job.

If low-wage jobs act as a stepping stone to higher-paying work, then even a relatively high share of low-wage work may not be a serious social problem. If, however, as appears to be the case in much of the wealthy world, low-wage work is a persistent and recurring state for many workers, then low-wages may contribute to broader income and wealth inequality and constitute a threat to social cohesion.

And here are the five lessons Schmitt lists in the study:

• Economic Growth is not a Solution to the Problem of Low-wage Work.
• More “Inclusive” Labor-market Institutions Lead to Lower Levels of Low-wage Work.
• The United States is a Poor Model for Combating Low-wage Work.
• Low-wage Work is Not a Clear-cut Stepping Stone to Higher-wage Work.
• In the United States, Low Wages are among the Least of the Problems Facing Low-wage Workers.